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Arsenic is a toxicant found in ground water around the world, and human exposure mainly comes from drinking water or from crops grown in areas containing arsenic in soils or water. Epidemiological studies have shown that arsenic exposure during development decreased intellectual function, reduced birth weight, and altered locomotor activity, while in vitro studies have shown that arsenite decreased muscle and neuronal cell differentiation. The sonic hedgehog (Shh) signaling pathway plays an important role during the differentiation of both neurons and skeletal muscle. The purpose of this study was to investigate whether arsenic can disrupt Shh signaling in P19 mouse embryonic stem cells, leading to changes muscle and neuronal cell differentiation. P19 embryonic stem cells were exposed to 0, 0.25, or 0.5 μM of sodium arsenite for up to 9 days during cell differentiation. We found that arsenite exposure significantly reduced transcript levels of genes in the Shh pathway in both a time and dose-dependent manner. This included the Shh ligand, which was decreased 2- to 3-fold, the Gli2 transcription factor, which was decreased 2- to 3-fold, and its downstream target gene Ascl1, which was decreased 5-fold. GLI2 protein levels and transcriptional activity were also reduced. However, arsenic did not alter GLI2 primary cilium accumulation or nuclear translocation. Moreover, additional extracellular SHH rescued the inhibitory effects of arsenic on cellular differentiation due to an increase in GLI binding activity. Taken together, we conclude that arsenic exposure affected Shh signaling, ultimately decreasing the expression of the Gli2 transcription factor. These results suggest a mechanism by which arsenic disrupts cell differentiation.Arsenic exposure decreases sonic hedgehog pathway-related gene expression.Arsenic decreases GLI2 protein levels and transcriptional activity in P19 cells.Arsenic exposure does not alter the levels of SHH expression and GLI2 primary cilum accumulation.Induction of the Shh pathway rescues arsenic's inhibitory effects on cell differentiation.